#HYHRD Three flavors of #DRIP – Market, Discount or (DTC discount-eligible), & DRIP @ #NAV

Howdy, Y’all!

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I’m Pat Rosenheim, a.k.a. the PandA Trader.

images.duckduckgo.com

The patron reads the relevant entry in the dictionary aloud and, sure enough, finds an explanation. “Panda. Large black-and-white bear-like mammal, native to China. Eats, shoots and leaves.

Well, now we’re going to discuss DRIP, which is an acronym for Dividend ReInvestment Plan.

I’m sure most of you know what that means, but in case you don’t you can simply click the above sentence for an explanation from investopedia. It will open in a new tab…

I’m going to explore three flavors of DRIP in this post, as they apply to our portfolio…

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The three different flavors I’ll lay out in this post are:

  • Market DRIP
  • Discount (or DTC discount-eligible) DRIP
  • DRIP @ NAV

Market DRIP

When your dividends reinvest at market, or current share price, you are simply buying more shares with your dividends at market prices. There usually isn’t a long wait between dividend payment and reinvestment. This is the least efficient method of dividend reinvestment.

Discount (or DTC discount-eligible) DRIP

When your dividends reinvest at a possible discount (or the holding is DTC discount-eligible), you are simply buying more shares with your dividends at a discount to market prices. The discount is usually determined by the paying company, and it usually takes a week or more for the reinvestment to take place. This is more efficient than ‘Market DRIP’, but less efficient than ‘DRIP @ NAV’.

DRIP @ NAV

When your dividends reinvest at NAV, or Net Asset Value, you are simply buying more shares with your dividends at NAV prices. Now, obviously this would only work in the shareholder’s favor if the issue is trading at a premium to NAV. This is also determined by the paying company. This is the most efficient method of dividend reinvestment.

There may be more ‘flavors’, but these three are what I’ll be concentrating on in this post, at least at the beginning…

I’ve changed my dividend re-investment scheme, again. I’m only re-investing dividends that *might* possibly re-invest at a discount, i.e. DTC discount-eligible.

On our Google sheets we have a tab labeled “Div.’s” that has color-coded dividend projections for each of our four accounts to show which flavor of dividend reinvestment is used by each holding. Some ‘guesswork’ on my part is required because there may be no discount for a reinvestment but it may still be a part of the discount (or DTC discount-eligible) DRIP plan but it just reinvested at 0% discount. It could also be reinvesting at market price.

I recently purchased the NEW 2019 Edition of Dividend Reinvestment Plans thinking that I’d be getting the definitive guide to discount dividend reinvestment plans. I was greatly disappointed. I don’t believe there are *any* #CEFs mentioned AT ALL.

So, I’m going to continue to assume that if a reinvestment takes more than 2 or 3 days that it is due to the holding participating in discount DRIP. This may not be true, but as I said I’m going to assume as much at least until I get a definitive answer from someone at Fidelity. That will require a phone call. I hate making phone calls.

I am tracking dividends paid that are eligible for reinvestment to see how long it takes to reinvest, whether the reinvestment is at market price or a discount, and posting the results on my Google sheets.

This is what it looks like;

drip

It’s beginning to look like issues trading at a discount to NAV will not generally reinvest at a discount, but more time is needed to fully verify that hypothesis.

A little more about PandA;

My name is Pat, and my wife’s name is Arlene. Take our first initials and concatenate them with the word ‘and’ in between and you get ‘PandA’. I chose this as my pseudonym for Stocktwits and my blog, etc. I think it’s rather fitting for us, plus her dad used to call her “DreamGirlStarBabyPanda” when she was younger. So, it’s kind of a tribute to him as well. It may seem a little ‘corny’, but that’s how it is…

…I’m old, and sometimes I do ‘corny’ stuff! 😉

Stay tuned!

As always, YMMV!

PLEASE TAKE NOTE AND REMEMBER THIS!

I’m not telling anyone to buy anything or giving anyone any advice, because that’s illegal. You see, I have no letters after my name, like RIA, CFA, etc. I SIMPLY DO NOT GIVE ADVICE. I only tell (and show!) what I do. You, like me, are all alone in this.

And remember, always do your own due diligence!

panda_wildePat Rosenheim
(PandA Trader)
High Yield, High Return Dividend
Portfolio
pat@patrosenheim.com
http://www.HYHRD.com
pandawalk

 

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About PandA Trader

I am, I think... "Disobedience, in the eyes of anyone who has read history, is man's original virtue. It is through disobedience and rebellion that progress has been made." -- Oscar Wilde
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2 Responses to #HYHRD Three flavors of #DRIP – Market, Discount or (DTC discount-eligible), & DRIP @ #NAV

  1. higrm says:

    Hi Pat,
    I have a few CEF’s but I actually try to avoid them, (I own relatively small positions in JMF, USA, UTF, BIF and HYB out of 55 total holdings, making up about 8% of my portfolio value). I’ve read a couple Seeking Alpha articles slamming CEF’s in general and a few of the big name CEF’s in particular. The two biggest gripes are that you are paying very high fees, for something that is often already available in a low cost ETF; and secondly, you aren’t normally getting dividends but distributions that are determined once a year at some fixed rate of NAV, such as 10%. Now at the end of the year, you’ll get your distribution report and see that a large portion of the money you got paid via these distributions was just return of capital. So maybe, the reason you don’t see CEFs on your newly purchased ‘Dividend Reinvestment Plans’ is because the CEF’s aren’t paying any dividends. But you appear to really like CEF’s. What is your counter-argument to the high fees and perpetually falling NAV caused by Return of Cap distributions put forward my those S/A contributors?
    Cheers,
    Higrm

    PS. Have you looked again at ABBV? I know you held some and sold it all awhile back, but maybe now it is interesting for you again. I’ve been doing some put selling, as the premiums are quite attractive. I’m sitting on a sizeable position at the moment that is breakeven with the dividends, but underwater on share price, otherwise I would have snapped up more when it dropped below $70. When the price gets back up to breakeven, $80, I’ll start righting covered calls as I need to trim my position a bit. Should probably take it down by a third, that would make it about 6% of my total holdings.

    Like

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